Markets have soared after the Conservatives won the election, and prompted a rush to reassess the investment prospects of UK companies.
Financial experts reckon funds invested in smaller or mid cap firms and the more contrarian and value-oriented players are best placed to exploit the decisive result, which has brought some certainty to the Brexit process from here.
We round up their views on the sectors with the best potential for strong returns and their fund and trust tips below.
Post election review: Financial experts reckon funds invested in smaller or mid cap firms and the more contrarian and value-oriented players are well placed
Investing experts tip funds and trusts poised for post-election gains
Darius McDermott, managing director of FundCalibre
Managed by Alex Wright, this trust is a prime candidate for value investors looking to tap into the unloved UK market.
A contrarian investor, Alex targets companies which are exceptionally undervalued as a way of preserving capital as well as those where he feels there is a catalyst for growth in earnings.
These catalysts can take many forms, such as a change in economic conditions or a change in management.
This fund is run by two managers with an exceptional track record of investing in UK smaller companies.
Paul Marriage and John Warren look for companies with a differentiated product, high margins, company management aligned with shareholders, and a market leading position.
These companies will make up 75 per cent of the portfolio, with the remainder allocated to value opportunities, like self-help stories.
This fund leverages off a wider team of some 50 investment professionals to take advantage of its private equity expertise to invest in some truly unexplored areas of the market.
The fund invests in around 50 very small companies and manager Ken Wotton will hold successful investments as they grow in the future.
Ken also avoids high-risk sectors such as oil, mining and property.
Adrian Lowcock, head of personal investing at Willis Owen
This fund aims for capital growth with a reasonable level of income. Alastair Mundy is a seasoned and talented manager.
Mundy and his team use a well-established contrarian process that seeks to invest in companies whose share prices have seen significant falls (50 per cent or more) relative to the market.
Mundy and his team put considerable emphasis on understanding business fundamentals and balance sheets to avoid value traps.
The process is structured and detailed with a focus on the longer term. The fund holds Travis Perkins and Royal Bank of Scotland.
Fund managers Nick Kirrage and Kevin Murphy process seeks to identify companies that are trading at significant discounts to their perceived fair values.
The managers are not constrained by the FTSE All Share when constructing the relatively focused portfolio.
The value focus combined with the managers’ long-term outlook, can result in performance more volatile than the benchmark. The fund is a deep value strategy and includes RBS and Lloyds in their top 10.
Jason Hollands, managing director at Tilney Investment Management
This is an investment trust, managed by Alex Wright, who takes a contrarian approach, buying out of favour stocks where he assesses the downside risks to be low.
He invests in UK companies of all sizes, but the portfolio has a strong mid and small company flavour to it.
Stocks typically fit into four categories: turnaround companies that have performed poorly but have early signs of improvement; unrecognised growth companies trading on relatively low valuations; hidden jewels that have divisions with potential not fully recognised by the market; and businesses with an above average chance of being involved in takeovers.
Alex Saviddes looks to invest ub businesses that have been underperforming but are undergoing a phase of positive change, such as a restructuring or the appointment of new management.
He likes companies that are generating dividends or expected to start doing so shortly. The fund invests across the full spectrum of company sizes, including exposure to both medium sized and smaller companies.
This fund, managed by Chris St. John, focuses primarily on the 250 largest companies outside of the FTSE 100, though has the flexibility to invest up to 15 per cent in the FTSE 100 as well as take positions in smaller companies that might in due course enter the mid-cap space.
The focus is quality companies with strong cash generation. Examples of holdings include boiler service and repair firm Homeserve, landscaping materials group Marshalls and media group Future plc.
What do investing experts say about the Tory election win?
‘This is exactly the result Boris Johnson was hoping for. He will now have more freedom to negotiate with the European Union, and a softer Brexit could be on the cards – but at least finally in sight,’ says Darius McDermott, managing director of FundCalibre.
‘The UK stock market is likely to rally now, as will the pound, as confidence returns. Domestic-facing businesses and smaller companies in particular should do well.
‘In contrast, the larger overseas earners in the FTSE 100 may suffer a little due to the currency reversal.
However, this may be mitigated in time by overseas investors returning to our shores and once again investing more broadly in the UK stock market.
‘There is a lot still to be done in terms of the final trade deal, but we at least now have a clearer path, and a sense of purpose, so British companies can operate with less of a cloud hanging over their futures.’
Jason Hollands, managing director at Tilney Investment Management, says: ‘The lifting of substantial policy risks should be positive for market sentiment and also unlock investment, hiring and M&A decisions that have been parked in recent months.
‘The programme set out in the Tory manifesto of higher public spending, will also provide a fiscal stimulus as the year progresses.
‘The UK market is relatively cheap compared to other developed equity markets and therefore we expect to see increased buying of UK stocks from overseas investors with the election resolved and the market looking investable again.
‘I expect the biggest beneficiairies to be the more domestically facing businesses. These are more prevalent in the mid-cap space.
‘In contrast, large, international companies will face a bit of headwind from a continued strengthening of sterling which has been rallying since August but surged significantly overnight.’
Tom Stevenson, investment director for personal investing at Fidelity International, says: ‘Investor sentiment is being driven as much by relief that Labour’s hard-left agenda of nationalisation, increased taxation and higher government spending is off the radar.
‘Sectors most exposed to its plans, such as utilities, are likely to fare best in any initial rally.
‘Domestic stocks are expected to do better than the FTSE 100’s international-facing shares, which could be held back by a stronger pound.
‘Government bonds are predicted to take a hit as a more optimistic economic outlook starts to be reflected in higher yields, which move in the opposite direction to prices.
‘Looking beyond the initial market response, there remain question marks over the sustainability of any rally given the ongoing uncertainties in the Brexit negotiations.
‘Other factors for investors to consider include the likely pressure on the new Government to increase spending in order to deliver on campaign promises. This could stimulate economic activity and encourage more business investment, but it could also increase borrowing and it is not clear how the market will weigh up those conflicting forces.
‘Overseas investors, who have long shunned the UK, will see the disappearance of the risk of a Labour Government as a positive, offering the prospect of a re-rating of Britain’s out-of-favour equity market.’
Niall Gallagher, investment director for European equities at GAM Investments, says: ‘The UK election result is very positive for European equities and within that stocks exposed to the UK economy and European cyclicals, for example autos, construction, and building materials.
‘European equities and UK equities have seen very substantial outflows over the last 18 months – indeed European equities have seen more outflows as a percentage of the starting base than any other asset class in any other region.
‘We now expect business confidence in the UK to bounce back with knock-on effects into Europe.
‘We expect risk assets across Europe to be well bid and inflows to resume, pushing up European equity markets further with a bias towards more cyclical stocks and plenty of domestic UK exposure.
‘It is important not to underestimate how low allocations are to many UK and European risk assets so these impacts may well be large and persist for some time.’
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